The Transparent RRSP: Month-end Market Read

Action for the week of April 24
  • I transferred another $150.00 to the RRSP account’s current cash of $29.90, which will give me $179.90 for the month of May.

I also didn’t do anything for the RRSP last week (the week of April 17). I mainly sold more shares of other stocks in my TFSA. I was feeling exposed having so many stocks at a time that I feel the market is going to have a correction. The fact that I still have 28 stocks in this account is still a head-scratcher. I managed to make a decent profit on some of these, so I’m sitting on more cash than I have in a long while.


Marks

The XIC and SPY ETFs on freestockcharts.com

The Canadian Market

You can see on the XIC that the Canadian market has just been trading sideways. At the time of writing this, there still remains one more trading day this month. There is usually a lot of selling at around month-end mainly because funds are re-balancing their portfolios for cash to pay investors. So, it remains to be seen how we’ll close, but I don’t think it will be too far off from where we closed last month.

The Canadian market has been lagging the US market this year so far. It’s not a surprise. Check out the two bottom charts where I drew the circles. Upon quick visual inspection, you can see we covered way more distance in 2016 than the US market. We (our economy and our loonie) got beat up so badly from the underperformance of oil/energy in 2015, that we had so much room to climb up and recover. And that we did. Our sectors in energy, mining, and finance gave great performances.

Every good run needs a break to slow down and catch its breath. If I want to find out what is making the market do what it’s doing, or where the market could be heading, I will look at the major players. I’ll either check out the sector ETFs, or the biggest companies in the influencing sectors.

For this scenario, I’m keeping an eye on the banks, all of which are in the process of a correction. It could be just a bit of a selloff, or it could be a substantial selloff that will keep going until mid-late summer or fall. Now, don’t go on selling your dividend-paying bank stocks – I’m just saying keep an eye on them if you want to have a better gauge as to where the market is going.

I will suggest that if you’re interested in accumulating more shares in bank stocks, you might want to wait a while for the prices to come down more and have settled down for a bit before going up again. I am a huge fan of waiting for new buying opportunities and I will wait months, even years, to get into good stocks.

The US Market

I can’t invest or trade or think anything stock-related without looking at “the SPY,” the most popular American S&P 500 Index ETF. It’s more out of habit having used it so much for day trading than it is out of necessity. I look at it to get the feel for the market, its momentum, and its sentiment. It often is quite off from the actual S&P 500 Index, but it’s where the action is at. This is where I discovered the importance of monitoring trade volume.

I never look at the SPY without looking at the QQQ, the NASDAQ Index ETF. Plus, I never look at “the Qs” without looking at some of its big players/action stars: Apple, Microsoft, Facebook, Google, etc. I attribute the US market’s most recent run, not as much to its new president (but I’m sure he’ll take full credit for it, very true), but to the technology sector. I’m sure this would stir a lot of debate, but I’m speaking from an on-the-ground perspective because I own a few tech stocks.

The tech sector has been the leading sector over the last year, so it’s important to keep an eye on it along with its biggest stocks. You can watch the Qs and the tech ETF, XLK and the semiconductor ETF, SMH. When observing the big players in tech, look out for shifts in volume and ask is the buying volume is lessening? is the selling volume increasing? or whenever the prices drop, is there a lot of buying or just a little?

I would also be watching the US financial sector’s ETF, XLF. Like Canada’s, the US financial sector has been pulling back the last couple of months. If tech starts to come down along with the financials, then I’d expect a more prominent correction in the US market before more new buying opportunities start presenting themselves again.


This is my process and how I see the market. I’m always trying to find clues that indicate optimism (buying), euphoria (heavy buying with big price moves), panic (heavy selling with quick and large drops in price), pessimism (selling), or neutrality (lower volume, sideways trading).

I still hear over and over that timing the market is useless. I don’t look at it as ‘timing’ because it’s not a science, nor is it something you can accurately measure. It’s more about reading the market. Investors’ feelings and sentiment move the markets, not numbers. I hope that one day, more people will see it this way and learn how to invest with the flow.

 

 

 

 

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